Designing & Defending Retirement Account Beneficiary Designations

Domestic & Foreign Asset Protection Solutions

In our planning process, we subscribe to the following definition of “estate planning”: To control my property while I am alive and well; to provide for me if I become disabled; and to give what I have, to whom I want, when I want, the way I want; all at the lowest possible overall cost. We have found this to be a broad comprehensive definition which encompasses our clients and their families’ hopes, dreams, aspirations, and peccadilloes and allows us to design a unique estate plan for each client that works when coupled with a regular updating program that insures that the plan is current and all assets are properly titled.

Keeping the basic definition of estate planning in mind, here are 11 basic concepts to consider in a good estate plan.

Protect your loved ones’ future. You have worked hard to accumulate and protect assets during your lifetime. Through a proper understanding and utilization of trust based planning, you have unique opportunities to provide your spouse and descendants with full access to enjoy the fruits of their share of your assets, yet protect those assets from their creditors, their spouses, and their own excesses or lack of adequate financial acumen to manage their own affairs.

Pass your values to your descendants. You have an opportunity to pass more than $$$$ to your loved ones. You can create financial incentives or disincentives to encourage or discourage conduct such as staying sober, attending religious services, getting higher education, travel, avoiding criminal convictions, achieving excellence in chosen fields, making charitable contributions, participating in cultural or community activities, or any other ideal that you hold dear or abhor. Through detailed instructions to your trustee, we can create an environment to encourage your children to succeed or instruct the trustee to exercise reasonable discretion based on the beneficiary’s life choices. These are very personal solutions unique to each family, not off the shelf solutions purchased for a fixed price. I also place a high value on the creation of a family letter or ethical will which describes your values and life experiences to your descendants. I will explain the importance of this concept and how to create the letter during the planning process.

Establish a team to help you and your loved ones in the event of diminished capacity or death. With many couples, one spouse usually handles the principal checkbook and is responsible for the investing. If you fit that profile, think about how those matters will be handled if you die. Now think about how they will be handled if you become disabled and are no longer able to handle your own affairs. Wouldn’t it be a comfort knowing that your spouse and children have a team of professional advisors who are already familiar with your finances and your plan? Wouldn’t it be beneficial to create a plan that is understood by your spouse, lawyer, accountant, and financial advisor or advisors? Even if you don’t utilize the team in the present, if there is a team chosen by you standing by ready to assist your spouse and children in the time of need, you will benefit from knowing that life does indeed go on and in fact can go on without the severe problems that can be associated with your loved ones trying to scramble for help without a clue when you suddenly are no longer able to perform your accustomed role.

Avoid unnecessary legal expenses whether you are dead or alive. This may be as simple as using joint tenancy to avoid probate, but for most large estates ($500,000 or larger) there is much more to the story. Some plans save legal fees at the expense of significant taxes which could have been legally avoided if a proper plan been instituted at the proper time. It is important to find out what services are involved in conservatorship, death administrations, and trust administrations and how to pay for it. Properly planning with a qualified estate planner can identify these expenses and how to effectively utilize a plan to minimize your legal expenses. Each individual has unique situations and no two plans should be the same. If you have a fixed price, one price fits all plan, planning opportunities were probably sacrificed in the interest of low cost. An experienced planner can discover and describe those opportunities. A reputable planner will identify the potential issues, possible solutions, and then tell you how much you should pay to satisfactorily resolve the issue.

Why “Avoiding Probate” is a tired, oversold, disreputable concept. The slogan “avoid probate” arose as hook to sell living trusts in the 1960s. It exists because it states such as New York and California, there are statutory fees out of line with the actual cost of providing probate services. It is still used today as a “come on” for sellers of trust packages, but in Arizona there is little to fear from a probate case, the cost of a probate is usually based on a lawyer’s efforts and even a trust administration will not avoid the use of attorneys to settle a decedent’s estate as many probate avoidance salesmen intimate. There are economical and practical alternatives to probate that include using a trust package, but only a knowledgeable, experienced lawyer can identify and explain which tools best fit your individual circumstances.

Find out about the legal expenses involved in creating an estate plan, a disability, or a death. You want to be able to distinguish necessary from unnecessary legal expenses. The best time to find out about legal expenses is before you need them, not when you or your loved ones are in a panic mode and anxious about making the decision. You should interview several lawyers before you need one so you are in a position to compare the services they offer and the relative value for the services provided.

The only way to use both spouses’ estate tax exemptions and the importance of planning. Unless the “credit shelter” or “bypass” trust plan is created before the first spouse passes away, a family may forfeit the right to use the decedent’s estate tax exemption ($1,500,000 in 2004 and 2005). Couples often mistakenly believe because their estate is less than two times the exemption amount they won’t pay estate taxes. Wrong! If your combined estate is only $2,000,000 and you both die before the end of 2004 without proper planning, your heirs will pay more than $200,000 in estate taxes, when they could have legally paid nothing!

How to legally avoid all possible estate taxes. “Credit shelter” or “bypass” trust planning is the most common way for a couple to save estate taxes. But there are other techniques for married and single individuals, including life time giving to your descendants, charitable contributions, forming family companies, using life insurance, and other techniques which can assure that the fully value of your assets pass to your loved ones undiminished by estate taxes. If your joint estate is currently worth more than $1,500,000, you owe it to yourself to find out what techniques might be appropriate for you. A consultation with a qualified estate planner will reveal which techniques might work for you.

How to keep a family business in the family. In most circumstances, the estate tax bill comes due 9 months after your death or the death of your spouse. Illiquid family businesses are often sold to raise money for estate taxes. There are limited opportunities to defer estate taxes for family businesses, but there are also planning opportunities where your loved ones can take advantage of court approved techniques for dramatically reducing the amount of estate taxes payable on a family business. The key is proper ownership of the business before your death and the use of available planning techniques to obtain significant valuation discounts for marketability and control, even if your business is real estate rentals or investing in marketable securities.

How to minimize income taxes and gains on appreciated property. Through the use of a Charitable Remainder Trust, appreciated property can be converted to productive or diversified assets without paying capital gains tax until the proceeds are actually withdrawn. The value of the assets are also removed from your estate for estate tax purposes. The Trust can be set up to provide a life time stream of income for you, your spouse, and your children. In combination with life insurance strategies, the net result can dramatically reduce estate taxes while increasing the actual value of the assets passing to your descendants. You can control the size of the payouts, can control the investing of the proceeds, and retain the right to name the charitable beneficiary. We can show you illustrations of how you might benefit from using one or more of these advanced planning techniques.

Why joint tenancy is so dangerous. Joint tenancy may be a good way to avoid probate, but it eliminates the ability to use tax advantaged planning and the decedent loses control over the distribution of the assets. No asset in joint tenancy can be used to fund a “credit shelter” trust or achieve any other objectives of the owner. Right of survivorship may be simple, but it may not be right for your family. It also exposes the owner of the asset to the creditors of the joint tenant. An attorney can explain when to and when not to use right of survivorship as part of your overall estate plan.

Why Qualified Plans (IRAs, 401ks and others) must be considered. There are significant and complicated opportunities that must be integrated with your estate plan. Spousal rollovers may or may not be right for a surviving spouse and a post-mortem division of an account into more than one share may provide additional planning opportunities, but these opportunities must be carefully considered and the structure implemented prior to your death if your family is to take advantage of some of the best tax deferral opportunities or access the cash without penalty prematurely. Federal statutes and regulations affecting qualified plans have been amended or changed twice in the past four years and may yet be changed again. These assets are now a significant part of many estates and should be integrated into your overall planning.

Why updating your estate plan is so important. Unless you periodically review your estate plan it may be outdated and not effective. Objectives change, assets grow in value, assets get retitled as properties are bought and sold, and the composition of families change. These changes cause your plan not to work the way you want. Just as your insurance or investment portfolios are reviewed periodically, so should your overall estate plan be reviewed to insure that the objectives and assets are still consistent with your values and intentions. Once you have an appropriate estate plan, keeping it up to date is relatively inexpensive compared with the price of having an estate plan that no longer works. A single omitted asset or growth in the size of your estate can cost many thousands of dollars of unexpected estate taxes and what is the cost of not taking into account changes in your distributive intent?

This entry was posted on Tuesday, October 19th, 2010 at 9:54 am and is filed under Uncategorized.

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I thought Mark was very professional and I was pleased with his presenting his thoughtful analysis during the course of the ordeal [in a contested probate matter].

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Viewing this website does not create an attorney/client relationship. The material contained herein is general legal information and not advice. You should consult an attorney admitted in your jurisdiction regarding your specific legal matter. The lawyers in this firm are admitted to practice law only in Arizona.